Martin Feldstein, Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. In 2006, he was appointed to President Bush's Foreign Intelligence Advisory Board, and, in 2009, was appointed to President Obama's Economic Recovery Advisory Board. Currently, he is on the board of directors of the Council on Foreign Relations, the Trilateral Commission, and the Group of 30, a non-profit, international body that seeks greater understanding of global economic issues.

I believe Mr. Feldstein needs to have his memory refreshed. In his article he speculates that a lower tax rate on corporate profits will have a highly favorable impact on business investment, raising productivity and overall economic growth.

There is a study entitled "Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945", whcih was prepared for Members and Committees of the US Congress, with date September 14, 2012 which concludes:
"The share of income accruing to the top 0.1% of U.S. families
increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009
recession. The evidence does not suggest necessarily a relationship between tax policy with
regard to the top tax rates and the size of the economic pie, but there may be a relationship to how
the economic pie is sliced."

FX rates depend on capital flows, with only a small portion of FX trades being used to pay for exports and imports. (The figure 10-15%comes to mind). The immediate impact of the border tax will be to force a price reduction on Canadian lumber, oil, entertainment productions and software exports to the US. Very bad for Canada. As there will be some stickiness to these price reductions, prices for the US consumer will rise. When Apple and other MNCs bring $$ back, the US dollar will appreciate, in the short term, partially offsetting more expensive imports. As tax regimes around the world reduce their corporate tax rate (an exogenous variable not considered by the eminent professor of economics), capital will flow out of the US , devaluing the US dollar and increasing consumer prices.
End result, everyone is worse off, the US consumer gets angry and all the Republicans get thrown out of Congress. But do we have to go through all this pain just to achieve that noble objective?
BTW, repatriation of US corporate profits will benefit the rich, either through dividends or by share buybacks. Companies invest in factories, leading to jobs, when there are consumers for their products. We already know trickle down (aka Laffable) economics does not create jobs, and exacerbates income inequality.
You need to increase personal tax rates to offset a reduction in corporate tax rates, or put in a VAT tax. Plain and simple, and unpopular.

What about income inequality? The tax reforms praised by this old man stuck in the past will insure the dominance of the rich into the forseeaboe future. But that's just what the foul Republicans want.

Stan Kardasz FEB 1,2017
A 20% import tax and export subsidy would reduce imports and increase exports thereby setting in motion a chain reaction which would affect all major macro variables including saving and investment. So there is no reason to expect an offsetting increase in the dollar which would leave the trade balance unchanged.

Stan Kardasz FEB 1, 2017
A 20% import tax and export subsidy will reduce imports and increase exports thereby setting in motion a chain of events which would affect all major macroeconomic variables including saving and investment. So there is no reason to expect an offsetting increase in the dollar which would leave the trade balance unchanged.

Stan Kardasz Feb 1, 2017
In any sensible macroeconomic model, a 20% import tax and export subsidy will increase exports and reduce imports thereby affecting all major macro variables including saving and investment. So there is absolutely no reason to expect an offsetting increase in the dollar that would leave the trade balance unchanged.

Everyone quotes the 35% corporate profits tax as the highest in the World. But other sources say that the actual average rate is 17% (With many top MNCs paying n taxes to the US government). How would you modify your analysis with an actual rate of 17%?
Isn't the topic of your oped a red herring on the much more important background - that you ignore - of power relations between corporations, governments and domestic populations? Your next column?

Far better to have a 17% tax rate and few if any deductions. Then everyone has 17% instead of some paying 35% and some paying 0%. If you added a dividend tax on dividends from untaxed earnings you would do even better (it could be applied to buybacks too). That is the logic of Irelands low tax scheme.

hm, i thought corp's figured out decades ago that if you have large profits, you can transfer them to your shareholders by doing share buybacks to reduce the profit figure and avoid the tax hit. And sometimes the shareholders see additional benefit in cases when capital gains rate is lower than dividends.

The border tax adjustment suggests that exporters will carry the profit and importers will be managed to have zero profit, simply avoiding the penalty.

The "territorial system" sounds like a powerful move, but also a giveaway. Presumably repatriation of e.g. Apple's overseas $$ would stimulate savings and investment in the US, or maybe a stock bubble, which the trump administration will need to keep itself afloat politically. Also perhaps it is relevant to the concern about savings vs investment, but it's confusing which way the causation goes there.

All in all big changes, big opportunities... politically, big handouts to the big spenders. lots to be concerned about.

It's an elegant solution to the present corporate tax system problem of not maximizing revenue for the federal government. And it won't cost anything from the American side.

Of course, I agree all your points. However, I feel that even more change should be introduced.

The corporate tax rate should be harmonized with Canada's at 14.7% (instead of 16% per the elegant proposal outlined in your essay) AND a totally separate tariff regime should be introduced.

1. Tariff Level One: A standardized and reciprocal 5% tariff on everything imported into the U.S. except books *in any form, including digital* and for those medicines that *actually* save lives -- to be levied against goods from countries with which the U.S.A. HAS existing trade agreements.

2. Tariff Level Two: A standardized and reciprocal 10% tariff on everything imported into the U.S. except books *in any form, including digital* and for those medicines that *actually* save lives -- to be levied against goods from countries with which the U.S.A. DOES NOT HAVE existing trade agreements.

3. Tariff Level Three: A 25% tariff on everything imported into the U.S. except books *in any form, including digital* and for those medicines that *actually* save lives -- to be levied against goods from countries with which the U.S.A. DOES NOT HAVE existing trade agreements NOR AGREE TO ENACT STANDARDIZED AND RECIPROCAL TARIFFS.

In this way, it drives plenty of revenue, until such times as every country gets onboard with the U.S. tax structure, at which point they will all have FAIR and FREE standardized and reciprocal trade agreements with the U.S.A. -- and even then, a 5% across-the-board tariff that is standardized and reciprocal, will bring in plenty of revenue, concomitant with the tax changes proposed in your excellent essay.

More than anything, it puts the U.S.A. in the driver's seat in regards to the norms of international trade, and provides the U.S. A. with plenty of momentum in regards to future trade negotiations/deals.

Corporate taxes in the US are complicated, but not burdensome. Two percent of GDP is low for a developed country.

A territorial tax system encourages US firms to establish subsidiaries in low tax jurisdictions; it's better than the current system, which has been used to help firms avoid tax altogether, but it's not optimal.

A cash flow corporate tax that does does away with depreciation and the deduction for interest costs would be great, but one has to pay for the other, if tax revenue is not going to suffer.

Border adjustments on a cash-flow tax that exempts domestic inputs are equivalent to tariffs and export subsidies, which are illegal under our trade agreements. The trade balance is a small part of the story on exchange rate adjustments; those adjustments are driven primarily by capital movements which in turn depend on central bank actions.

Finally, an overhaul of the personal income tax to even up the treatment of capital and earned income, and to shift payments for entitlements from payroll taxes to a value-added tax would be far more significant than any changes to simplify corporate taxes.

I find it very hard to believe that the problem we are having have any relation to the tax structure. In times where interest rates are at the zero lower bound, and there is no lack of demand for sovereign bonds with low and even negative rates, to be worrying with taxes, is an aberration.

IMHO we are living in times where the fear of losing outweighs the illusion of higher profits, that’s why there is no lack of demand for Bonds and Blue Chip stocks, while the risk premia is high and there are no incentives on creating new public companies (no major IPO’s).

Decreasing risk premia should be the goal, improving information, tackling the agency problems we have been living. Tax reforms and labor legislation is just some kind of fetish that many share, a fetish with no real grounding that comes down from deep down prejudice and dogmas.

First. ..Trade baLance depends on the difference of domestic savings and domestic investment.
Well as far I understand when you spend more (IMPORTS) than your income (Exports ) you have a negative balance (Trade deficit ) So when you are in negative income as a nation you cant have any savings.
Of course if the profits earned in foreign countries are brought back then it would be possible to show a savings of the corporations ,but unless they pay it out or invest it fully back to the domestic economic induviduals still would have a negative income.
Of course the issue is accounting. One must account profit as savings and that is not possible because corporate profits must demand the same amount of debt by the individuals.
Would love to see the teaching being explained!
I'm not even talking about that the real issue in trading is the job deficit of about 30 to 40 millions that created the wage
pressure by distorting the suply and demand of the labor market.
Second..is this a joke?
"that tax is borne by foreign producers, who, owing to the dollar’s appreciation, receive less in their own currencies for their exports to the US."
I been an exporter to the usa for 25 years
when the dollar appreciate against the Canadian dollar I get more for my exports from Canada in my currency the Canadian dollar.
Isn't every country trying to depreciate their own currencie to boost their export value in their own respective curencies.
So if Mr Martin Feldstein could explain these too statement I would really appreciate.
By the way the mechanisms of the taxation is simple.
Every single tax components in an economic output wether it's income or regulatory tax component must be paid by the costumer.
So if an imported economic output has no or less tax components than obviously it's cost are favorable to the costumer.
But that is just a favoritism based economic policy without any merits or consideration of democratic economic policies.
Governments in their respective nation should fully rebate every single tax components of exported economic output so the importing nation can have proper tax components charged without discriminating ,disadvantage the domestic economic output.
The only fair taxation system that would be proper in the so called globalist economic system is a pure only value added tax or vat and no other form of taxes income or regulatory that unfairly only charged for the domestic economic outputs and increases the cost of it.

Informative but I lose the train of thought at the point where you say the border adjustment tax will not affect imports and exports. The way I see it - adustment tax is levying imports 20 % and subsidizing exports 20%. Firstly, this means certain imports get substituted locally, certain exports increase in quantity, affecting the whole calcualtion. Secondly, trading partners will reciprocate negating the whole advantage of this subsidy. Thirdly, betting that the dollar will move up and down as a result I find to be largely wishful thinking style economics. As a non-economist I may be completely wrong here, but I also can't follow through in my mind that the tax will work out like you claim.

A territorial taxing system for profits made abroad sounds like an invitation to invest as much abroad (and not in the US) as is possible in low taxation countries because firms will save the difference between foreign and domestic profit taxes.

Mrs. May, who wants to make Britain a tax haven, will be happy.

By the way, it is not true that the US is unique among industrial countries in subjecting repatriated profits earned by its companies’ foreign subsidiaries to the full domestic tax rate (with a credit for tax paid to the foreign government). Many countries are like that.

Sorry, no. The more profits you get in low tax countries, the lower the US tax - lower than if you had invested and created jobs at home. So you not only save taxes but also export jobs to those countries.

The only difference is that you can bring those profits to the US taxfree and pay your shareholders more. It doesn't create jobs.

No. What he means is that apple can divide their revenue into territories. If a phone is sold in the Australia territory the US never gets to tax that money even if it repatriates it. Which means they will then repatriate it because it will not give rise to additional tax.

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